The State Board of Regents of the State of Utah plans to issue $418 million of bonds backed by federally guaranteed student loans.
The student loan servicer acquired approximately 96.6% of the Federal Family Education Loan Program portfolio from a large national bank in February 2015, according to Standard & Poor’s; it originated the remaining 3.4%.
Utah SBR services all of the loans in the pool, though the loans that it purchased from a national bank were initially serviced by Xerox ES. The Pennsylvania Higher Education Assistance Agency will be the back-up servicer. Both the issuer and PHEAA have extensive FFELP servicing experience and historically low rates of rejection for claims submitted to the Department of Education, which guarantees at least 97% of the loans, according to S&P.
Two tranches of notes will be issued in the transaction, dubbed Utah SBR Series 2017-1: a $402 million senior tranche is rated AA + by S&P and AAA by Fitch Ratings, while a $17.8 million subordinate tranche is rated BBB by Fitch but is unrated by S&P.
Both will pay a floating rate of interest indexed to one-month Libor and mature in January 2057.
RBC Capital Markets is the underwriter.
Approximately 18.2% of loans in the pool were used to consolidate student debt; 77.9% are Stafford loans, and 3.9% PLUS loans (to graduates or parents of undergraduates) and SLS (supplemental) loans. Approximately 81.4% of the pool is 97% guaranteed by the Education Department, 18.5% is 98% guaranteed, and 0.2% is 100% guaranteed, according to S&P.
The collateral is moderately seasoned--approximately 68.3% has been in repayment for over three years--which S&P notes generally results in lower default levels.
Total credit enhancement is provided by overcollateralization and excess spread and, at closing, total parity as defined by the issuer is expected to be 101.81%.
The notes to be issued benefit from a reserve fund will initially be funded at $1,050,000, which is 0.25% of the original principal amount of the notes.
There is also a partial turbo mechanism that, after the August 2020, will use all available funds remaining after paying fees, note interest, and required deposits to the reserve fund to make principal payments until the notes are fully retired.
Utah SBR was formed in 1969 as the governing body of the Utah System of Higher Education and is responsible for the governance of the higher education system in Utah. It is authorized to acquire, purchase and make commitments to purchase loans made to students or parents of students by lenders, and to loan money to students or parents for purposes of assisting students in obtaining a post-secondary education as well as to issue bonds and notes to obtain funds to purchase those loans.
Utah SBR has purchased or originated approximately $8.4 billion of student loans since 1979, and as of November 2016, owned and administered a FFELP loan portfolio with an aggregate outstanding principal balance of approximately $2.13 billion, all of which it directly services.
